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Dig in: Fibre gold rush opens prospect of operator consolidation

Fibre operators have revelled in free-flowing capital entering the sector as demands for high-speed broadband in Europe has accelerated. But, in the wake of rising costs and overbuild, the days of a fragmented market could be coming to an end.

With 40 deals so far in 2022, investment in the sector is on track to book its highest number of transactions in the last decade although the average size of deal has fallen with this years’ accumulated deal value (EUR 6.1bn) unlikely to reach the EUR 9bn amassed last year, Dealogic data show.

Fibre activity was responsible for a modest 3.5% of the value of all telecom, media and tech (TMT) in the year-to-date although this is up from making up around 2.6% of the value of deals in the same period the year prior, according to Dealogic data.

Appetite for investing in fibre rollout projects has shown no signs of slowing as investors have continued to hunt for fibre opportunities. Spanish operators have occupied the attention of European investors this year with Lyntia’s fibre division Lyntia Networks being acquired by Axa Investment Management [EPA:CS], Swiss Life and Morrison & Co, which valued the company around EUR 2bn. Aire Networks was acquired by Ardian in a EUR 600m deal, while Telefonica [BME:TEL] agreed a EUR 1bn deal for a 45% stake in its fibre subsidiary to Credit Agricole Assurances and Vauban Infrastructure Partners

In the Nordics, incumbent operators Telenor [OSL:TEL] sold a 30% stake in its fibre company to a consortium led by KKR [NYSE:KKR] and Oslo Pensjonsforsikring.

Rolling on

The rise of smaller players fibre operators — alt-nets — which have emerged as challengers for Europe’s incumbent operator — has acted as a catalyst for activity. The UK in particular has seen the rise of local operators seeking capital in a land grab attempt against UK incumbent BT’s [LON: BT.A] Openreach network, and Virgin Media O2, which recently completed its own joint-venture arrangement with Infravia for the rollout of its own UK-wide fibre network.

Among the alt-nets seeking investment includes rural fibre network Gigaclear, which is working with UBS to raise GBP 400m for a rollout of fibre in Southern England.

Smaller local operators Zzoomm and Trooli are running processes to each raise GBP 200m to accelerate the rollout of fibre, Freedom Fibre’s GBP 100m from infrastructure investor Equitix and Santander. Other UK fibre deals include Netomnia’s GBP 295m investment from Digital Bridge.

Digging out of a hole

Fibre operators are, however, facing new challenges. Smaller operators are facing the burden of rising costs because of inflationary pressures, as well as the risk of potential overbuild as each operator competes to roll out fibre in similar locations.

Coupled with the competitive threat of incumbent operators, who are also beginning their own fibre expansion, fibre companies could face the prospects of consolidating with each other, similar to what cable companies were seen to do in the 1990s.

Among the players who could be ripe for consolidation includes Community Fibre which received approaches earlier in the year from rival alt-net operators from rival groups including  Hyperoptic, CityFibre and G.Network.

For now, the fibre gold rush is set to continue, but whether Europe’s network operators are on the dawn of consolidation, or whether they are cable-able to go alone, remains to be seen.